Why the jump in share price after a dismal quarter for net domain name adds?

Well, Citigroup upgraded the company from sell to neutral today saying “fundamentals have likely bottomed”. Financials apparently exceeded most expectations.

Verisign had just 0.42 million net adds in .com and .net last quarter. It expects Q3 net adds to rebound to between 0.6 million and 1.1, which is definitely a move in the right direction. With slipping renewal rates, these targets would indeed be rather strong and require strong new registrations.

The company also announced a 10% price hike on .net. No knowledgeable analyst didn’t see that coming, though.

Of course, when the first credible report comes out suggesting that new TLDs are making a dent in .com…

From Google to where it stashes its cash, here’s what Verisign told analysts yesterday.

Yesterday Verisign announced earnings for the first quarter and held its investor conference call. Here are four key things the company explained.

Google is slowing our growth.

Verisign blames the reduced growth rate in its domain base on overall macroeconomic trends (especially in Europe) and on changes to Google’s search algorithms. On yesterday’s conference call, it certainly focused on the latter.

Basically, Google’s Penguin and Panda updates have hurt some of the companies that register lots of domains solely for search-based monetization. They’re registering fewer domains and letting more expire.

I never thought I’d hear the name Matt Cutts mentioned on a Verisign conference call. But it happened yesterday.

For Q2 the company expects to add only 0.9 million and 1.3 million names.

We stash a lot of our cash overseas so we don’t pay taxes on it.

Like many tech companies, Verisign keeps a lot of cash overseas so it doesn’t have to pay as much to Uncle Sam.

Of the company’s $1.56 billion in cash, cash equivalents and marketable securities at the end of the quarter, approximately $240 million was domestic. The rest was held overseas and hasn’t been taxed in the U.S. yet.

The company continues to work on its tax strategy around these funds.

It will be a while before we see any positive or negative impact from new TLDs.

Except as it relates to marketing expenses, new top level domains weren’t discussed on the call until the last analyst inquired.

This lack of discussion is surprising after Verisign sent a letter to ICANN saying that new TLDs weren’t ready for primetime.

To quickly summarize Verisign’s response about new TLDs: there continue to be delays. We think it will get off the ground in the second half of the year. It won’t be material to us this year.

Will new TLDs ever be material to Verisign? I think it will be marginal on the upside. The company is clearly worried about the downside, though.

We’re getting ready to play hardball with our patent portfolio.

On last quarter’s conference call the company said it was reviewing its patent portfolio to figure out how its intellectual property can help its business.

That review is still ongoing, but CEO James Bidzos reiterated that the goal likely won’t be to extract royalties, “but to use it in support of our business goals and our business planning”.

I’ve work in the intellectual property licensing world, and I can tell you there’s little difference between these strategies. The company wants to extract revenue out of the patents, whether that’s through direct payments or strong-arming other companies to sell the company’s products or enter into other business deals.

In the first quarter it added a combined 1.99 million domain names in .com and .net. That brings the total to 123.1 million active domain names in the zone for .com and .net — a 5.5 percent increase year over year. This is an improvement over Q4 2012 when it added only 1.25 million names. But a better comparison my by Q1 of 2012, when it added 2.86 million names to the root.

It processed 8.8 million new domain name registrations in the quarter, down from 8.9 million in the same quarter last year but up from 8.0 million in Q4.

The company reported $236 million revenue for the quarter, which is up 15% from the same quarter last year. GAAP net income was $85 million for the quarter.

Just as I don’t understand why the DOW has been hitting all time records lately, I also don’t understand this: Verisign is apparently worth the same with or without seven-percent-a-year price hikes on .com.

When Verisign dropped the bomb on October 25 that the Department of Commerce was reviewing its ability to automatically increase prices, the company had a marketcap of about $7 billion.

Verisign signed a contract renewal without the hikes.

Now, six months later, Verisign’s market cap is back up to $7 billion.

Verisign is a stable, cash printing machine. Yet you’d think shaving off hundreds of millions of dollars a year in pure profit would result in a lower valuation.